US Open: Sterling Price Action Once Again Takes Center Stage

With the exception of Sterling, the story in the overnight session was one of relative stability and consolidation following yesterday’s flight to safety price action.

US Open – With the exception of Sterling, the story in the overnight session was one of relative stability and consolidation following yesterday’s flight to safety price action. An article in today’s London Times entitled "Mervyn King paves way to start BoE print presses" set the tone for the initial GBP weakness with the currency also weighed down by yet another wave of selling in the local equity markets on more uncertainty over the outlook for the UK banking sector. Various names on the offer overnight included some corporate and real money accounts. In Euroland, ECB President Trichet has been on the wires this morning talking more about the outlook and challenges for the ECB and Eurozone economy. Trichet has addressed any concerns over the talk of a potential Euro breakup saying that these rumors are unfounded. The more balanced outlook and approach out from the ECB over the past several months in the face of the current global turmoil continues to be a great benefit to the Euro against Sterling with the cross once again mounting impressive gains over the past few days, looking to retest the recent life-time highs by 0.9800.USD/JPY action has been quiet thus far today with the market trading by 90.00 as a reported $7B option barrier is set to roll off today at the New York cut. Stable equity futures and unchanged commodity prices have helped to keep the antipodeans flat overnight with Aussie trading a fraction lower on the day, while Kiwi is slightly better bid primarily on the back of the better than expected overnight retail sales data coming in flat versus a -1.2% consensus. USD/CAD has given back some of its gains following yesterday’s as expected Bank of Canada decision to cut rates by 50bps to 1.00%. However, with a plethora of option expiries set to roll off here as well, the market isn’t expected to move all that much until the New York cut. There is not a lot ofevent risk on the table today with Canadian wholesale sales (1.5% expected) due up at 13:30 GMT followed by US NAHB housing data (9 expected) later in the day at 18:00 GMT.

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Korea May Regulate Borrowing

Over the last two years, South Korea's overseas borrowings more than doubled, to $388 Billion. Nervous, perhaps, that Korean businesses may be overextending themselves, the government is seeking to regulate such activities. Based on the way the forex markets responded to the news, it must be perceived that borrowing abroad is helping the Korean economy. On the one hand, if loans are denominated in foreign currency and must then be converted to local currency, this would exert upward pressure on the Korean Won. On the other hand, this also requires more local currency to be printed, which fuels inflation. Much of the borrowings are being undertaken by shipbuilders who are trying to hedge their exposure to a rising Dollar. The Edge Daily reports:Some analysts say the forward-trading-linked borrowing is not as big a problem as borrowing to fund consumption would be, but the government is worried that the sharp rise in debt over a short period of time could undermine the local financial system.